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Survival and Success among African Manufacturing Firms

  • Francis Teal
  • Alan Harding
  • MÃ¥ns Söderbom
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    Recent reforms in most African economies of their trading and exchange rate regimes have eliminated much of the protection which previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this paper we consider the roles of learning, competition and market imperfections in determining three aspects of firm performance, namely firm exit, firm growth and productivity growth. We use a pooled panel data set of firms in Ghana, Kenya and Tanzania that spans a period of five years. We find that the main determinant of exit is firm size, with small firms having much higher exit rates than large ones. Productivity impacts on firm survival among large firms, but not among small firms. Reasons for this result are discussed. We find evidence that, among surviving firms, old firms grow slower than young firms, which is interpreted as evidence consistent with market constraints limiting growth of firms in Africa. We find no evidence that larger firms have faster rates of productivity or input growth, or are more efficient in the sense of benefiting from scale economies. We also find that competitive pressure enhances productivity growth. Given that one of the objectives of the reform programmes implemented in all three countries was to stimulate higher efficiency levels, this finding shows that one aspect of the reform programme has been successful.

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    File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2004-05text.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2004-05.

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    Date of creation: 01 Feb 2004
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    Handle: RePEc:oxf:wpaper:wps/2004-05
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    Web page: http://www.economics.ox.ac.uk/
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    1. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
    2. Tybout, James, 1998. "Manufacuring firms in developing countries - how well do they do, and why?," Policy Research Working Paper Series 1965, The World Bank.
    3. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-81, June.
    4. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    5. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    6. Frazer, Garth, 2006. "Learning the master's trade: Apprenticeship and human capital in Ghana," Journal of Development Economics, Elsevier, vol. 81(2), pages 259-298, December.
    7. repec:fth:inseep:9730 is not listed on IDEAS
    8. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
    9. M�ns S–derbom & Francis Teal, 2003. "Are Manufacturing Exports the Key to Economic Success in Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 1-29, March.
    10. Måns Söderbom & Francis Teal, 2004. "Size and Efficiency in African Manufacturing Firms:Evidence from Firm-Level Panel Data," Development and Comp Systems 0409010, EconWPA.
    11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
    12. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December.
    13. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
    14. Klein, Michael, 2003. "Ways out of poverty : diffusing best practices and creating capabilities - perspectives on policies for poverty reduction," Policy Research Working Paper Series 2990, The World Bank.
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